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<SEC-DOCUMENT>0000898430-02-003155.txt : 20020814
<SEC-HEADER>0000898430-02-003155.hdr.sgml : 20020814
<ACCEPTANCE-DATETIME>20020814155110
ACCESSION NUMBER:		0000898430-02-003155
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20020630
FILED AS OF DATE:		20020814

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			INTERLINK ELECTRONICS INC
		CENTRAL INDEX KEY:			0000828146
		STANDARD INDUSTRIAL CLASSIFICATION:	COMPUTER PERIPHERAL EQUIPMENT, NEC [3577]
		IRS NUMBER:				770056625
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-21858
		FILM NUMBER:		02736269

	BUSINESS ADDRESS:	
		STREET 1:		546 FLYNN RD
		CITY:			CAMARILLO
		STATE:			CA
		ZIP:			93012
		BUSINESS PHONE:		8054848855

	MAIL ADDRESS:	
		STREET 1:		546 FLYNN ROAD
		CITY:			CAMARILLO
		STATE:			CA
		ZIP:			93012

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	INTERLINK ELECTRONICS
		DATE OF NAME CHANGE:	19940525
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>d10q.txt
<DESCRIPTION>FORM 10-Q
<TEXT>
<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


     [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

          For the quarterly period ended June 30, 2002

                                       or

     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934

          For the transition period from _____ to ____


                           Commission File No. 0-21858

                           INTERLINK ELECTRONICS, INC.
             (Exact name of registrant as specified in its charter)

          Delaware                                     77-0056625
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

          546 Flynn Road
        Camarillo, California                           93012
(Address of principal executive offices)              (Zip Code)


                                 (805) 484-8855
              (Registrant's telephone number, including area code)

                                 Not applicable.
               (Former name, former address and former fiscal year
                          if changed since last report)


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.

         Yes [X]             No __



Shares of Common Stock Outstanding, at July 31, 2002: 9,766,641


                                       1

<PAGE>

PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements

INTERLINK ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUES)

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
                                                                             December 31,     June 30,
                                                                                 2001           2002
                                                                             ------------  ------------
                                                                                            (Unaudited)
<S>                                                                          <C>           <C>
Assets
Current assets:
   Cash and cash equivalents                                                 $      6,868  $      8,679
   Marketable securities                                                            2,457            --
   Accounts receivable, less allowance for doubtful accounts
     of $914 and $944 at December 31, 2001 and June 30, 2002, respectively          5,493         4,791
   Inventories                                                                      8,502         9,283
   Prepaid expenses and other current assets                                          426           163
                                                                             ------------  ------------

     Total current assets                                                          23,746        22,916

Property and equipment, net                                                         1,393         1,208
Deferred tax asset                                                                  1,301         1,301
Patents and trademarks, less accumulated amortization
   of $981 and $1,040 at December 31, 2001 and June 30, 2002, respectively            114            69
Other assets                                                                           87             6
                                                                             ------------  ------------

Total assets                                                                 $     26,641  $     25,500
                                                                             ============  ============
Liabilities and Stockholders' Equity
Current liabilities:
   Current maturities of long-term debt and capital lease obligations        $      1,923  $      1,511
   Accounts payable                                                                 1,679         1,463
   Accrued payroll and related expenses                                               609           846
    Other accrued expenses                                                            202           237
                                                                             ------------  ------------
     Total current liabilities                                                      4,413         4,057
                                                                             ------------  ------------

Long-term debt, net of current portion                                              1,855         1,720
Minority interest                                                                      68            57
Commitments and contingencies                                                          --            --
Stockholders' equity:
  Preferred stock, $5.00 par value (100 shares authorized,
       none issued and outstanding)                                                    --            --
  Common stock, $0.00001 par value (50,000 shares authorized,
      9,759 and 9,763 shares issued and outstanding at December 31, 2001 and
      June 30, 2002, respectively)                                                 29,029        29,052
     Due from stockholders                                                           (838)         (798)
 Accumulated other comprehensive loss                                                (843)         (813)
 Accumulated deficit                                                               (7,043)       (7,775)
                                                                             ------------  ------------

     Total stockholders' equity                                                    20,305        19,666
                                                                             ------------  ------------

Total liabilities and stockholders' equity                                   $     26,641  $     25,500
                                                                             ============  ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       2

<PAGE>

INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
                                          Three Month Period       Six Month Period
                                            Ended June 30,          Ended June 30,
                                         --------------------    --------------------
                                           2001        2002        2001         2002
                                         --------    --------    --------    --------
<S>                                      <C>         <C>         <C>         <C>
Revenues                                 $  6,539    $  6,027    $ 13,928    $ 11,436
Cost of revenues                            5,685       3,553       9,802       6,695
                                         --------    --------    --------    --------
Gross profit                                  854       2,474       4,126       4,741

Operating expense:
   Product development and research         1,001         868       1,845       1,733
   Selling, general and administrative      2,183       1,889       4,182       3,730
                                         --------    --------    --------    --------
     Total operating expense                3,184       2,757       6,027       5,463
                                         --------    --------    --------    --------
Operating loss                             (2,330)       (283)     (1,901)       (722)
                                         --------    --------    --------    --------
Other income (expense):
   Interest income (expense), net              56          (3)        115          16
   Minority interest                           --          11         (12)         11
   Other income (expense)                      1         (58)         64         (37)
                                         --------    --------    --------    --------
     Total other income (expense)              57         (50)        167         (10)
                                         --------    --------    --------    --------
Loss before provision for
   income taxes                            (2,273)       (333)     (1,734)       (732)
                                         --------    --------    --------    --------
Provision for income tax benefit             (455)         --        (649)         --
                                         --------    --------    --------    --------
Net loss                                 $ (1,818)   $   (333)   $ (1,085)   $   (732)
                                         ========    ========    ========    ========
Loss per share - basic                   $   (.19)   $   (.03)   $   (.11)   $   (.07)
Loss per share - diluted                 $   (.19)   $   (.03)   $   (.11)   $   (.07)

Weighted average shares - basic             9,640       9,763       9,525       9,761
Weighted average shares - diluted           9,640       9,763       9,525       9,761
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       3

<PAGE>

INTERLINK ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
                                                                    Six Month Period
                                                                     Ended June 30,
                                                                 --------------------
                                                                  2001          2002
                                                                 --------    --------
<S>                                                              <C>         <C>
Cash flows from operating activities:
     Net loss                                                    $ (1,085)   $   (732)
     Adjustments to reconcile net loss to net cash provided by
       operating activities:
         Provision for bad debts                                       49          35
         Depreciation and amortization                                352         495
         Minority interest                                             12         (11)
         Deferred tax asset                                          (701)         --
         Changes in operating assets and liabilities:
           Accounts receivable                                        763         667
           Inventories                                              1,141        (781)
           Prepaid expenses and other current assets                  165         263
           Other assets                                               (41)         81
           Accounts payable                                            17        (216)
           Accrued payroll and related expenses                       (59)        272
                                                                 --------    --------
              Net cash provided by operating activities               613          73

Cash flows from investing activities:
     Sales of marketable securities                                    --       2,457
     Purchases of property and equipment                             (397)       (251)
     Costs of patents and trademarks                                   --         (14)
                                                                 --------    --------
           Net cash provided by (used in) investing activities       (397)      2,192

Cash flows from financing activities:
     Principal payments on long term debt                          (1,007)       (500)
     Principal payments on capital lease obligations                  (67)        (47)
     Proceeds from issuance of common stock, net                      961          23
     Due from stockholder                                            (403)         40
                                                                 --------    --------
              Net cash used in financing activities                  (516)       (484)
                                                                 --------    --------

Effect of exchange rate changes on cash                              (502)         30
                                                                 --------    --------

Increase (decrease) in cash and cash equivalents                     (802)      1,811
Cash and cash equivalents:
       Beginning of period                                         10,506       6,868
                                                                 --------    --------
       End of period                                             $  9,704    $  8,679
                                                                 ========    ========

Supplemental disclosures of cash flow information:
       Interest paid                                             $     70    $     45
       Income taxes paid                                         $     29    $      1
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.


                                       4

<PAGE>

INTERLINK ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
- ---------------------------------------------------------------

1.   Basis of Presentation of Interim Financial Data

The financial information as of June 30, 2002 and for the three month and six
month periods ended June 30, 2001 and 2002 included in this report is unaudited;
however, such information reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of results for the interim periods. The interim statements
should be read in conjunction with the financial statements and the related
notes included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2001.

The results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.

2.   Comprehensive Loss

The following table provides the data required to calculate comprehensive loss:

<TABLE>
<CAPTION>
                                                          (In thousands)
                                               ------------------------------------
                                               Accumulated Other
                                                 Comprehensive     Comprehensive
                                                      Loss               Loss
                                                ---------------    ----------------
            <S>                                 <C>                <C>
            Balance at December 31, 2000        $          (168)
            Translation adjustment                         (502)   $           (502)
            Net loss                                         --              (1,085)
                                                ---------------    ----------------

            Balance at June 30, 2001            $          (670)   $         (1,587)
                                                ===============    ================

            Balance at December 31, 2001        $          (843)
            Translation adjustment                           30    $             30
            Net loss                                         --                (732)
                                                ---------------    ----------------

            Balance at June 30, 2002            $          (813)   $           (702)
                                                ===============    ================
</TABLE>


                                       5

<PAGE>

3. Segment Information

The Company has four business segments: (i) business communications (ii) home
entertainment, (iii) e-transactions and (iv) specialty components. The
accounting policies of the segments are the same as those described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies." However, the Company evaluates
performance based on revenue and gross profit. The Company does not allocate any
other income, expenses or assets to these segments. Reportable segment
information for the six months ended June 30, 2001 and 2002 is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                         Specialty
                            Business             Home             E-    Components
Six Months Ended:     Communications    Entertainment   Transactions     and Other     Total
- ----------------      --------------    -------------   ------------    ----------    -------
<S>                           <C>                <C>            <C>         <C>       <C>
June 30, 2001
   Revenue                    $9,470             $567           $523        $3,368    $13,928
   Gross profit                2,039              272            261         1,554      4,126
June 30, 2002
   Revenue                    $7,008           $1,350           $788        $2,290    $11,436
   Gross profit                2,592              608            470         1,071      4,741
</TABLE>

4. Earnings Per Share

For all periods presented, per share information was computed pursuant to
provisions of the Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share", issued by the Financial Accounting Standards Board (FASB).
The computation of earnings per share--basic is based upon the weighted average
number of common shares outstanding during the periods presented. Earnings per
share--diluted also includes the effect of common shares contingently issuable
from options and warrants in periods which they have a dilutive effect.

Common stock equivalents are calculated using the treasury stock method. Under
the treasury stock method, the proceeds from the assumed conversion of options
and warrants are used to repurchase outstanding shares using a yearly average
market price.

The following table contains information necessary to calculate earnings per
share (in thousands):

<TABLE>
<CAPTION>
                                                       Three Months          Six Months
                                                      Ended June 30,       Ended June 30,
                                                     ----------------     ---------------
                                                       2001     2002      2001      2002
                                                      -----     -----     -----     -----
<S>                                                   <C>       <C>       <C>       <C>
Weighted average shares outstanding - basic           9,640     9,763     9,525     9,761
Effect of dilutive securities; options and warrants       -(1)      -(1)      -(1)      -(1)
                                                      -----     -----     -----     -----
Weighted average shares--diluted                      9,640     9,763     9,525     9,761
                                                      =====     =====     =====     =====
</TABLE>

- -----------

     (1)  Due to the net loss, the diluted share calculation result was
          anti-dilutive. Thus, the basic weighted average shares were used.
          Shares of common stock equivalents of approximately 1,795 and 1,698
          for the three months and six months ended June 30, 2002, respectively,
          and 1,907 for the three months and six months ended June 30, 2001,
          respectively, were not included in the diluted calculations because
          they were anti-dilutive.


                                       6

<PAGE>

5. Inventories

Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                December 31,      June 30,
                                   2001             2002
                                ------------      -------
            <S>                 <C>               <C>
            Raw material        $      3,218      $ 3,336
            Work in process              351          668
            Finished goods             4,933        5,279
                                ------------      -------
            Total inventories   $      8,502      $ 9,283
                                ============      =======
</TABLE>


6. Lines of Credit

We renegotiated the terms of our $5,000,000 domestic revolving line of credit
(unused at June 30, 2002). All financial covenants have been removed and any
future borrowings will be secured by cash and investments held at the bank. The
new agreement will expire on June 1, 2004.

We converted our previous equipment purchases line of credit with an outstanding
balance of $354,000 to a long term note. The revised loan is payable in equal
installments for 48 months at an interest of LIBOR plus 2.25%.

We entered into a new equipment purchases line of credit agreement for a maximum
of $500,000. The line of credit bears interest at LIBOR plus 2.5% and is secured
by cash and investments held at the bank. This line matures on July 1, 2003, at
which time, any outstanding balance will be converted to a 48 month note.

7. Recent Pronouncements

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
which among other things provide guidance in reporting gains and losses from
extinguishments of debt and accounting for leases. We will adopt this statement
in 2003 and are currently reviewing this statement to determine its impact,
however we do not expect the adoption of this standard to have a material impact
on our financial position or results of operations.

On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 nullifies EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." It
requires that a liability be recognized for those costs only when the liability
is incurred, that is, when it meets the definition of a liability in the FASB's
conceptual framework. SFAS No. 146 also establishes fair value as the objective
for initial measurement of liabilities related to exit or disposal activities
that are initiated after December 31, 2002, with earlier adoption encouraged.
The Company does not expect that the adoption of SFAS No. 146 will have a
material impact on its financial position or results from operations.

                                       7

<PAGE>

ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

Disclosure Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that involve
substantial risks and uncertainties and which are intended to be covered by the
safe harbors created thereby. These statements can be identified by the fact
that they do not relate strictly to historical information and may include the
words "expects", "believes", "anticipates", "plans", "may", "will", "intends",
"estimates", "continue" or other similar expressions. These forward-looking
statements are subject to various risks and uncertainties that could cause
actual results to differ materially from those currently anticipated. These
risks and uncertainties include, but are not limited to, items discussed in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001
under the heading "Forward-looking Statements", "Historical Factors Affecting
Financial Performance" and "2001 Overview". Forward-looking statements speak
only as of the date made. We undertake no obligation to publicly release or
update forward-looking statements, whether as a result of new information,
future events or otherwise.

Critical Accounting Policies

Material accounting policies that we believe are the most critical to an
investor's understanding of our financial results and condition and require
complex management judgment are discussed below.

Revenue Recognition. We recognize revenue in accordance with SEC Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements", as amended by SAB 101A and 101B. SAB 101 requires that four basic
criteria must be met before revenue can be recognized: (1) persuasive evidence
of an arrangement exists; (2) delivery has occurred or services rendered; (3)
the fee is fixed and determinable; and (4) collectibility is reasonably assured.
Determination of criteria (3) and (4) require management's judgments regarding
the fixed nature of the fee charged for services rendered and products delivered
and the collectibility of those fees. Should changes in conditions cause
management to determine these criteria are not met for certain future
transactions, such as a determination that an outstanding account receivable has
become uncollectible, revenue recognized for any reporting period could be
adversely affected.

Accounts Receivable. Our accounts receivable are unsecured, and we are at risk
to the extent such amounts become uncollectible. We continually monitor account
receivable balances, and provide for an allowance of doubtful accounts at the
time collection may become questionable based on payment performance or age of
the receivable and other factors related to the customers ability to pay.

Provision for Income Tax. We first achieved profitable operations in 1995.
Because of net operating loss carryforwards available both for our U.S.-based
and Japan-based operations, we did not accrue income tax expense until 1999. In
that year, due to the expiration or full utilization of NOL carryforwards in
California and Japan, we began to record a provision for income tax expense in
those jurisdictions. By the end of 2000, we also began to accrue an income tax
benefit related to our federal NOL carryforwards to be used in future periods.
However, in mid-2001, we began to record quarterly tax losses and suspended any
further recognition of NOL carryforward tax benefits. Management believes we
will be able to utilize the deferred tax asset; however, if we do not return to
quarterly profitability by the end of 2002, it is likely that we will eliminate
this asset ($1.3 million) by recording a tax expense.

Inventory and Bad Debt Reserves. In response to the economic slowdown in
mid-2001, we reduced our staff size, implemented other operating cost reduction
programs and increased our inventory by $2 million in the


                                       8

<PAGE>

second quarter 2001 and bad debt reserves by $300,000 in the third quarter 2001.
We believe these estimates of potential losses are adequate at June 30, 2002.
However, a further deterioration of the financial health of our customers either
in the U.S. or Japan may prove those estimates to be inadequate.

Foreign Exchange Exposure. We have established relationships with most of the
major OEMs in the business communications market. Many of these OEMs are based
in Japan and approximately 40% of our 2001 revenues came from Japanese
customers. Revenues from these customers are denominated in Japanese yen and as
a result we are subject to foreign currency exchange rate fluctuations in the
yen/dollar exchange rate. We use foreign currency forward contracts to hedge
this exposure. The gain or loss from these contracts is recorded in business
communications revenue ($750,000 gain in the year 2001 and $262,000 gain in the
first six months of 2002). These contracts typically have a six-month duration;
thus, yen/dollar fluctuations lasting more than six months will have an impact
on our revenues. In addition, as our Japan subsidiary's functional currency is
the yen, the translation of the net assets of that subsidiary into the
consolidated results will fluctuate with the yen/dollar exchange rate.

Recent Pronouncements

In April 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" which among other things provide guidance in reporting gains and
losses from extinguishments of debt and accounting for leases. We will adopt
this statement in 2003 and are currently reviewing this statement to determine
its impact, however we do not expect the adoption of this standard to have a
material impact on our financial position or results of operations.

On July 30, 2002, the FASB issue SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 nullifies EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." It
requires that a liability be recognized for those costs only when the liability
is incurred, that is, when it meets the definition of a liability in the FASB's
conceptual framework. SFAS No. 146 also establishes fair value as the objective
for initial measurement of liabilities related to exit or disposal activities
that are initiated after December 31, 2002, with earlier adoption encouraged. We
do not expect that the adoption of SFAS No. 146 will have a material impact on
its financial position or results from operations.

Overview

We were incorporated in California in February 1985 and reincorporated in
Delaware in July 1996. From 1985 to 1992, we developed and refined our Force
Sensing Resistor, or FSR, technology and sold it to customers for use in
electronic, musical, medical and other applications, which we now refer to as
the specialty components market. In 1992, we introduced our first
Interlink-branded computer-pointing device, PortaPoint, and in 1994, we
introduced our first wireless pointing device. The device, called RemotePoint,
established Interlink as a leading supplier of branded and OEM remote controls
and other products for the computerized presentation system market, which we
refer to as the business communication market. In 1999, we introduced an
electronic signature capture product, ePad, for sales to customers in the
e-transactions market. In 2000, we first demonstrated IntuiTouch technology,
which we are marketing to customers in the home entertainment market.

Revenue by market segment for the first and second halves of 2001 and the first
half of 2002 revenue by market segment is shown in the following table:


                                       9

<PAGE>

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
                                 First                        Second                          First
                                  Half                         Half                           Half
                                  2001                         2001                           2002
- ------------------------------------------------------------------------------------------------------------
                         Revenue                       Revenue                      Revenue
Market Segment          (Millions)      % Sales      (Millions)      % Sales       (Millions)     % Sales
- ------------------------------------------------------------------------------------------------------------
<S>                       <C>            <C>           <C>              <C>           <C>             <C>
Business                  $9.4           68%           $6.8             60%           $7.0            61%
Communications
- ------------------------------------------------------------------------------------------------------------
Specialty Components       3.4           24%            2.7           24%              2.3            20%
- ------------------------------------------------------------------------------------------------------------
Home Entertainment         0.6            4%            1.4           12%              1.3            12%
- ------------------------------------------------------------------------------------------------------------
E-Transactions             0.5            4%            0.5            4%              0.8             7%
- ------------------------------------------------------------------------------------------------------------
Total                    $13.9          100%          $11.4           100%           $11.4           100%
- ------------------------------------------------------------------------------------------------------------
</TABLE>


Our principal source of revenue continues to be our business communications
business. Sales in that market declined in 2001 as a result of general economic
conditions and resulting adjustments to purchasing and inventory levels by our
customers. As the presentation market has begun to recover, we achieved a 3%
increase in business communication revenues in the first half of 2002 as
compared to the second half of 2001.

Specialty components, the original market into which we sold our products,
continues to be a strong contributor to revenue. In 2000 and the first three
quarters of 2001, revenue generated by sales to customers in this market was
positively affected by licensing revenue from International Electronics and
Engineering, or IEE, which will not recur in 2002. This was the primary reason
revenues in this market declined from $3.4 million in the first half of 2001 to
$2.3 million in the same period of the current fiscal year. We expect sales to
customers in the specialty components market to continue to be a significant
contributor to our revenue but do not anticipate significant growth in this
market.

Revenue from sales to customers in the home entertainment sector results
primarily from sales of an FSR-based component for use in the Microsoft Xbox
game controller. We expect that these sales will continue in 2002 but that
revenue from our IntuiTouch products will develop slowly as new technologies are
introduced by our customers and development partners. At the date of this
report, however, we do not expect meaningful revenues from IntuiTouch products
until 2003. Home entertainment revenues in the last half of 2001 and the first
half of 2002 continued to be primarily driven by the Xbox program.

Our e-transactions business was adversely affected during 2001 by a general
slowdown in new equipment purchasing. Nonetheless, we completed significant
transactions with two insurance companies and two companies in the financial
services industry and continued to build our volume of sales to customers making
smaller orders. At both large and small volumes, sales of e-transaction devices
tend to result in "one-time" revenue and therefore sales levels in this segment
can be more volatile than in other markets in which we operate. However, we
believe that the increasing installed base of our e-transactions devices can
have a positive effect on future sales by providing evidence of technological
soundness and customer acceptance. As we build our customer base and reference
accounts, we have achieved a 60% increase in E-Transaction revenues in the first
half of 2002 as compared to the second half of 2001.

In 2001, we recorded our first annual decline in revenue in more than a decade
and our first annual loss since 1994. We believe that these results were
significantly affected by general economic conditions that adversely affected
purchasing levels in our established business communications and specialty
components markets and slowed the penetration of our products into the
e-transactions and home entertainment markets. In the case of particular
industries, such as the insurance industry that we have targeted for our
e-transactions products, the events of September 11 further impacted our ability
to achieve penetration levels that we had originally


                                       10

<PAGE>

anticipated. While these factors continued to affect our results in 2002, we
believe that our basic market positioning is sound. We continue to enjoy a
dominant share of the OEM business presentations controller market and are
having some success in developing sales channels for branded aftermarket
products. Our FSR-based products and components continue to sell well in both
the specialty components and home entertainment markets, our e-transactions
business appears to be gaining traction and we believe that our technology,
products and commercial relationships addressing interactive digital remote
communication put us in a position to capitalize on any growth in this market
sector.

Despite the downturn in revenues in 2001, we chose to maintain our commitment to
research and development, spending slightly more in 2001 than in the prior year
and also increased selling, general and administrative expense. During the
second quarter of fiscal 2001, as a result of a continued decline in revenues
and customer demand, we provided additional reserves of $2 million for excess
and obsolete inventories. The continued industry-wide reduction in capital
spending and the resulting decrease in demand for our products led to
significant reductions in our sales forecast. Our regular and ongoing reserve
analysis and methodology includes a comparison of sales forecasts and inventory
levels. As a result of the analysis based on second quarter 2001 sales forecast
revisions, we recorded a charge, which was included in the cost of revenues.
Increases to the inventory reserve during the remainder of fiscal 2001 and the
first half of 2002 were not significant. In addition, we recorded a $300,000
increase in bad debt reserves in the third quarter of 2001 due to changes in
certain customers' ability to pay arising after the original sales had been
made. Since third quarter 2001, no material modification to inventory and bad
debt reserves were made. Excluding the bad debt adjustment, total quarterly
operating expenses have remained relatively constant in the $2.7 - $2.8 million
range since third quarter 2001.

The loss in 2001 and in first half 2002 resulted in modest reductions in working
capital and stockholders' equity. However, liquidity remains relatively strong
and we foresee no immediate need for additional capital or immediate risk of
capital inadequacy.

Results of Operations

The following table presents our historical operating results for the periods
indicated as a percentage of revenues:

<TABLE>
<CAPTION>
                                                              Six Months Ended
                                                              ----------------
                                                                 (Unaudited)
                                                     June 30,  December 31,      June 30,
                                                      2001         2001          2002
                                                     -------   ------------      -------
            <S>                                      <C>       <C>               <C>
            Revenues                                   100.0%         100.0%       100.0%
                                                     -------   ------------      -------
            Gross profit                                29.6           41.3         41.5
            Operating expenses:
               Product development and research         13.2           15.1         15.2
               Selling, general and administrative      30.0           35.8         32.6
                                                     -------   ------------      -------
            Total operating expenses                    43.2           50.9         47.8
                                                     -------   ------------      -------
            Operating loss                             (13.6)          (9.6)        (6.3)
            Other income (expense)                       1.2              4         (0.1)
            Income tax benefit                           4.7            1.0           --
                                                     -------   ------------      -------
            Net loss                                    (7.8)%         (8.2)%       (6.4)%
                                                     =======   ============      ========
</TABLE>


Results of Operations - Three and six months ended June 30, 2002 compared to
three and six months ended June 30, 2001

Revenues declined 8% from $6.5 million in the three month period ended June 30,
2001 to $6.0 million in the three month period ended June 30, 2002. For the
first half of the year, revenues declined 18% from $13.9 million in 2001 to
$11.4 million in 2002. This revenue net decline resulted from the following
factors:


                                       11

<PAGE>

     -    Business communications segment revenues declined 11% when comparing
          second quarter 2001 to second quarter 2002 and declined 26% in the six
          month comparison due to the general slowdown in worldwide economies.

     -    Specialty components segment revenues declined 21% when comparing
          second quarter 2001 to second quarter 2002 and 32% when comparing the
          six month periods due to the slowdown in worldwide economies coupled
          with the elimination of approximately $500,000 per quarter in
          licensing royalties we had been receiving from IEE.

     -    Home entertainment segment revenues increased 45% when comparing
          second quarter 2001 to second quarter 2002 and 138% when comparing the
          six month periods due to sales of our Force Sensing Resistors for use
          in the Microsoft Xbox program.

     -    E-transactions segment revenues increased 39% when comparing second
          quarter 2001 to second quarter 2002 and 51% when comparing the six
          month periods due to sales to more customers.

Gross profit increased 190% from $854,000 in the three month period ended June
30, 2001 to $2.5 million in the three month period ended June 30, 2002 and
increased 15% from $4.1 million in the six month period ended June 30, 2001 to
$4.7 million in the six month period ended June 30, 2002. The increases were due
to the inventory reserve adjustment of $2 million recorded in second quarter
2001 which was recorded in cost of revenues.

Product development and research expense decreased 13% from $1 million in the
three month period ended June 30, 2001 to $868,000 in the three month period
ended June 30, 2002 and decreased 6% from $1.8 million in the six month period
ended June 30, 2001 to $1.7 million for the six month period ended June 30,
2002. As a percentage of revenues, product development and research expense
decreased from 15.3% in the three month period ended June 30, 2001 to 14.4% in
the three month period ended June 30, 2002 and increased from 13.2% in the six
month period ended June 30, 2001 to 15.2% for the six month period ended June
30, 2002. The decrease in the dollar amount primarily resulted from our
decreased use of outside design services. The increase on a percentage basis
reflects our commitment to maintain our R&D efforts despite the 18% decrease in
six month revenues.

Selling, general and administrative expense decreased 13% from $2.2 million in
the three month period ended June 30, 2001 to $1.9 million in the three month
period ended June 30, 2002 and decreased 11% from $4.2 million in the six month
period ended June 30, 2001 to $3.7 million for the six month period ended June
30, 2002. As a percentage of revenue, selling, general and administrative
expense decreased from 33.4% in the three month period ended June 30, 2001 to
31.3% in the three month period ended June 30, 2002 and increased from 30.0% in
the six month period ended June 30, 2001 to 32.6% in the six month period ended
June 30, 2002. The decrease in the dollar amount of SG&A is due to the reduction
of staff and implementation of operating cost reduction programs implemented in
the second quarter of 2001.

Loss from operations decreased from $2.3 million in the three month period ended
June 30, 2001 to $283,000 in the three month period ended June 30, 2002 and from
$1.9 million in the six months ended June 30, 2001 to $722,000 in the six months
ended June 30, 2002. Key factors contributing to the operating losses were the
$2.0 million additional reserve to inventory recorded in second quarter 2001 and
a partially off-setting 18% revenue decline incurred in the first half of 2002
as compared to the first half of 2001.

We recorded a $649,000 income tax benefit in the six month period ended June 30,
2001 and a zero tax provision in the six month period ended June 30, 2002. No
tax benefit was recorded in the 2002 period due to lack of sufficient
probability that any additional potential benefit would actually be realized.

Our net loss decreased from a $1.8 million loss in the three months ended June
30, 2001 to a loss of $333,000 for the same period in 2002 and the net loss
decreased from $1.1 million for the six months ended June 30, 2001 to a loss of
$732,000 for the same period in 2002 for the reasons described above.


                                       12

<PAGE>

Liquidity and Capital Resources

At June 30, 2002, working capital totaled $18.9 million as compared to $19.3
million at December 31, 2001. This decrease is a result of the negative
operating results coupled with the purchase of capital equipment.

For the six months ended June 30, 2002 operations generated $73,000. This result
is due to the negative operating results offset by non-cash adjustments and a
reduction in accounts receivable of $667,000.

For the six month period ended June 30, 2002, investing activities consisted
primarily of the usage of $251,000 to purchase production and computer network
equipment which was offset by the conversion to cash of marketable securities
that matured during the period.

We believe we can fund operations for at least the next twelve months from
existing cash balances. We renegotiated our U.S. bank lines of credit to
eliminate the financial covenants; however, the agreements governing the lines
of credit now require any future borrowings to be secured by cash and
investments held at the bank. Negotiated lines of credit in Japan and the
exercise of employee stock options are also potential sources of capital
available to us. We require liquidity to fund capital expenditures and for
working capital and other general corporate purposes.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

We use six-month foreign exchange forward contracts to hedge certain revenue
exposures against future movements in foreign exchange rates. Gains and losses
on the forward contracts are largely offset by gains and losses on the
underlying exposure and consequently we would not expect a sudden or significant
change in foreign exchange rates to have a material impact on future net income
or cash flows. However, a foreign exchange movement with a duration of over six
months could materially impact financial performance.


                                       13

<PAGE>

PART II:  OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders

On June 11, 2002 at our Annual Meeting of Stockholders, the holders of our
outstanding common stock took the actions described below. At April 17, 2002,
the record date, 9,758,872 shares of common stock were outstanding and eligible
to vote at the Annual Meeting of Stockholders.

     1.   By the vote indicated below, the stockholders re-elected George Gu and
          E. Michael Thoben to the Company's Board of Directors to serve for a
          three-year term:

                  For George Gu:

                           9,083,281                 Shares in favor
                                   0                 Shares against
                              41,828                 Shares withheld

                  For E. Michael Thoben

                           9,083,341                 Shares in favor
                                   0                 Shares against
                              41,768                 Shares witheld

Item 5.  Other Information.

On July 9, 2002, we filed a Schedule TO-I with the Securities and Exchange
Commission and distributed an offer to exchange to holders of our options with
an exercise price per share equal to or greater than $15, all of which were
outstanding under our 1996 Stock Incentive Plan. The offer gives those option
holders the opportunity to exchange their eligible options for a promise from us
to issue to them new options to purchase shares of our common stock, also to be
granted under the 1996 Stock Incentive Plan. Our offer expired at 5:00 p.m.,
Pacific time, on Wednesday, August 7, 2002. Options representing approximately
99.7% of the shares of our common stock underlying eligible options were
tendered. We cancelled those options on August 8, 2002 and, under the terms and
conditions of our offer to exchange, on our about February 10, 2003, we will
grant new options to purchase the same number of shares of common stock as the
number of shares subject to the options accepted for exchange with an exercise
price per share equal to the fair market value of a share of our stock on that
date.

On July 23, 2002, we filed a Current Report on Form 8-K under Item 4., "Changes
in Registrant's Certifying Accountants", announcing that we had engaged KPMG LLP
as our principal independent auditors.

Item 6.  Exhibits and Reports on Form 8-K

     (a)  Exhibits

     3.1  Certificate of Incorporation, as amended (incorporated by reference to
          Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the
          year ended December 31, 2000).

     3.2  Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant's
          Annual Report on Form 10-K for the year ended December 31, 2000).


                                       14

<PAGE>

     10.1 Credit Agreement with Wells Fargo Bank, National Association, and
          Registrant dated June 1, 2002.

     99.1 Certification of Chief Executive Officer of Registrant Pursuant to 18
          U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002

     99.2 Certification of Chief Financial Officer of Registrant Pursuant to 18
          U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002


     (b)  Reports on Form 8-K

     We filed a Current Report on Form 8-K under Item 4. "Changes in
     Registrant's Certifying Accountants" on June 28, 2002 announcing our
     dismissal of Arthur Andersen LLP as our principal accountant effective June
     24, 2002. A letter from Arthur Andersen LLP addressed to the Securities and
     Exchange Commission confirming statements made by us in the report was
     attached as an exhibit.


                                       15

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                                     INTERLINK ELECTRONICS, INC.



DATE: August 14, 2002                                /s/ E. Michael Thoben
                                                     ---------------------------
                                                     E. Michael Thoben
                                                     Chairman, CEO and President





                                       16

<PAGE>

                                  EXHIBIT INDEX

The following exhibits are filed with or incorporated by reference into this
Quarterly Report:

Exhibit
Number    Description
- -------   -----------

3.1       Certificate of Incorporation, as amended (incorporated by reference to
          Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the
          year ended December 31, 2000).

3.2       Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant's
          Annual Report on Form 10-K for the year ended December 31, 2000).

10.1      Credit Agreement with Wells Fargo Bank, National Association, and
          Registrant dated June 1, 2002.

99.1      Certification of Chief Executive Officer of Registrant Pursuant to 18
          U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002.

99.2      Certification of Chief Financial Officer of Registrant Pursuant to 18
          U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002.


                                       17

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>dex101.txt
<DESCRIPTION>AMENDED & RESTATED CREDIT AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.1

                                                                    June 1, 2002

Interlink Electronics, Inc.
546 Flynn Road
Camarillo, CA 93012

Gentlemen:

     This letter is to confirm that WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank"), subject to all terms and conditions contained herein, has agreed to
make available the credit described below to INTERLINK ELECTRONICS, INC.
("Borrower"):

     1.     A revolving line of credit under which Bank will make advances to
Borrower from time to time up to and including June 1, 2004, not to exceed at
any time the maximum principal amount of Five Million Dollars ($5,000,000.00)
("Line of Credit"), the proceeds of which shall be used to finance Borrower's
working capital requirements. Although this letter permits Borrower to engage in
Permitted Acquisitions (as defined below), the proceeds of advances under the
Line of Credit shall not be used to finance such acquisitions.

     2.     A commitment under which Bank will make advances to Borrower from
time to time up to and including June 30, 2003, not to exceed the aggregate
principal amount of Five Hundred Thousand Dollars ($500,000.00) ("Term
Commitment"), the proceeds of which shall be used to finance Borrower's purchase
of new and/or used equipment and which shall be converted on July 1, 2003, to a
term loan, as described more fully below.

     3.     A term loan in the principal amount of Three Hundred Fifty-three
Thousand Nine Hundred Ten And 85/100 Dollars ($353,910.85) ("Term Loan"), the
proceeds of which shall be used to refinance Borrower's existing loan with Bank.
Bank's commitment to grant the Term Loan shall terminate on July 20, 2002.

I.   CREDIT TERMS:

     1.     LINE OF CREDIT:

     (a)    Line of Credit Note. Borrower's obligation to repay advances under
the Line of Credit shall be evidenced by a promissory note substantially in the
form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which
are incorporated herein by this reference.

     (b)    Letter of Credit Subfeature. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue standby
and/or sight commercial letters of credit for the account of Borrower to finance
the purchase of raw materials (each, a "Letter of Credit" and collectively,
"Letters of Credit"); provided however, that the form and substance of each
Letter of Credit shall be subject to approval by Bank, in its sole discretion;
and provided further, that the aggregate undrawn amount of all outstanding
Letters of Credit shall not at any time exceed Two Million Dollars
($2,000,000.00). Each Letter of Credit shall be issued for a term not to exceed
one hundred twenty (120) days, as designated by Borrower; provided

<PAGE>

Interlink Electronics, Inc.
June 1, 2002
Page 2

however, that no Letter of Credit shall have an expiration date subsequent to
the maturity date of the Line of Credit. The undrawn amount of all Letters of
Credit shall be reserved under the Line of Credit and shall not be available for
borrowings thereunder. Each Letter of Credit shall be subject to the additional
terms and conditions of the Letter of Credit Agreement and related documents, if
any, required by Bank in connection with the issuance thereof. Each draft paid
by Bank under a Letter of Credit shall be deemed an advance under the Line of
Credit and shall be repaid by Borrower in accordance with the terms and
conditions of this letter applicable to such advances; provided however, that if
advances under the Line of Credit are not available, for any reason, at the time
any draft is paid by Bank, then Borrower shall immediately pay to Bank the full
amount of such draft, together with interest thereon from the date such amount
is paid by Bank to the date such amount is fully repaid by Borrower, at the rate
of interest applicable to advances under the Line of Credit. In such event
Borrower agrees that Bank, in its sole discretion, may debit any demand deposit
account maintained by Borrower with Bank for the amount of any such draft.

     (c)    Borrowing and Repayment. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.

     2.     TERM COMMITMENT:

     (a)    Term Commitment Note. Borrower's obligation to repay advances under
the Term Commitment shall be evidenced by a promissory note substantially in the
form of Exhibit B attached hereto ("Term Commitment Note"), all terms of which
are incorporated herein by this reference.

     (b)    Limitation on Borrowings. Each advance under the Loan Commitment
shall be available to a maximum of eighty percent (80%) of the cost of each item
of new equipment purchased and seventy-five percent (75%) of the cost of each
item of used equipment purchased with the proceeds there of, as evidenced by the
seller's invoice.

     (c)    Borrowing and Repayment. Borrower may from time to time during the
period in which Bank will make advances under the Term Commitment borrow and
partially or wholly repay its outstanding borrowings, provided that amounts
repaid may not be reborrowed, subject to all the limitations, terms and
conditions contained herein; provided however, that the total outstanding
borrowings under the Term Commitment shall not at any time exceed the maximum
principal amount available thereunder, as set forth above. The principal amount
of the Term Commitment shall be repaid in accordance with the provisions of the
Term Commitment Note.

     (d)    Prepayment. Borrower may prepay principal on the Term Commitment
solely in accordance with the provisions of the Term Commitment Note.

<PAGE>

Interlink Electronics, Inc.
June 1, 2002
Page 3

     3.     TERM LOAN:

     (a)    Term Note. Borrower's obligation to repay the Term Loan shall be
evidenced by a promissory note substantially in the form of Exhibit C attached
hereto ("Term Note"), all terms of which are incorporated herein by this
reference.

     (b)    Repayment. The principal amount of the Term Loan shall be repaid in
accordance with the provisions of the Term Note.

     (c)    Prepayment. Borrower may prepay principal on the Term Loan solely in
accordance with the provisions of the Term Note.

     4.     COLLATERAL:

     As security for all indebtedness of Borrower to Bank subject hereto,
Borrower hereby grants to Bank security interests of first priority in all
Borrower's accounts receivable and other rights to payment, general intangibles,
deposit accounts, documents, instruments, Brokerage Account No. 12561247,
inventory and equipment, including but not limited to its interest in any
Subsidiary (as defined below).

     All of the foregoing shall be evidenced by and subject to the terms of such
security agreements, financing statements, deeds of trust and other documents as
Bank shall reasonably require, all in form and substance satisfactory to Bank.
Borrower shall reimburse Bank immediately upon demand for all costs and expenses
incurred by Bank in connection with any of the foregoing security, including
without limitation, filing and recording fees and costs of appraisals, audits
and title insurance.

II.  INTEREST/FEES:

     1.     Interest. The outstanding principal balance of each credit subject
hereto shall bear interest at the rate of interest set forth in each promissory
note or other instrument executed in connection therewith.

     2.     Computation and Payment. Interest shall be computed on the basis of
a 360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in each promissory note or other instrument required hereby.

     3.     Unused Commitment Fee. Borrower shall pay to Bank a fee equal to
one-eighth quarter percent (0.125%) per annum (computed on the basis of a
360-day year, actual days elapsed) on the average daily unused amount of the
Line of Credit, which fee shall be calculated on a quarterly basis by Bank and
shall be due and payable by Borrower in arrears on each March 31, June 30,
September 30 and December 31

     4.     Letter of Credit Fees. Borrower shall pay to Bank fees upon the
issuance of each Letter of Credit, upon the payment or negotiation of each draft
under any Letter of Credit and upon the occurrence of any other activity with
respect to any Letter of Credit (including without

<PAGE>

Interlink Electronics, Inc.
June 1, 2002
Page 4

limitation, the transfer, amendment or cancellation of any Letter of Credit)
determined in accordance with Bank's standard fees and charges then in effect
for such activity.

     5.     Collection of Payments. Borrower authorizes Bank to collect all
principal, interest and fees due under each credit subject hereto by charging
Borrower's deposit account number 4796-018083 with Bank, or any other deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such deposit account to pay all such sums
when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.

III. REPRESENTATIONS AND WARRANTIES:

     Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this letter and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this letter.

     1.     Legal Status. Borrower is a corporation, duly organized and existing
and in good standing under the laws of the state of Delaware, and is qualified
or licensed to do business in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower. Borrower owns one hundred
percent (100%) of the stock of Interlink Electronics Asia Pacific, a Hong Kong
corporation (the "Hong Kong Subsidiary"). Borrower owns eighty percent (80%) of
the stock of Interlink Electronics, K.K., a Japanese company (the "Existing
Japanese Subsidiary"). As used herein, the term "Subsidiary" shall mean any
corporation or other entity of which at least a majority of the securities or
other ownership interests having ordinary voting power for the election of
directors or other persons performing similar functions are owned directly or
indirectly by Borrower and/or by one or more of Borrower's Subsidiaries. As used
herein, the term "Subsidiaries" shall mean each Subsidiary. As of the date of
this Agreement the only Subsidiaries of Borrower are the Hong Kong Subsidiary
and the Existing Japanese Subsidiary. Each Subsidiary is duly organized and
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation, as the case may be, and is qualified or licensed to
do business (and is in good standing as a foreign corporation, if applicable) in
all jurisdictions in which such qualification or licensing is required or in
which the failure to so qualify or to be so licensed could have a material
adverse effect on it.

     2.     Authorization and Validity. This letter and each promissory note,
contract, instrument and other document deemed necessary by Bank to evidence any
extension of credit to Borrower pursuant to the terms and conditions hereof, or
now or at any time hereafter required by or delivered to Bank in connection with
this letter (collectively, the "Loan Documents") have been duly authorized, and
upon their execution and delivery in accordance with the provisions hereof will
constitute legal, valid and binding agreements and obligations of Borrower or
the party which executes the same, enforceable in accordance with their
respective terms.

     3.     No Violation. The execution, delivery and performance by Borrower of
each of the Loan Documents do not violate any provision of any law or
regulation, or contravene any

<PAGE>

Interlink Electronics, Inc.
June 1, 2002
Page 5

provision of the Articles of Incorporation or By-Laws of Borrower, or result in
a breach of or constitute a default under any contract, obligation, indenture or
other instrument to which Borrower is a party or by which Borrower may be bound.

     4.     Litigation. There are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower or any Subsidiary other than those disclosed by Borrower
to Bank in writing prior to the date hereof.

     5.     Correctness of Financial Statement. The financial statement of
Borrower dated March 31, 2002, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower and its Subsidiary, (b)
discloses all liabilities of Borrower and its Subsidiary that are required to be
reflected or reserved against under generally accepted accounting principles,
whether liquidated or unliquidated, fixed or contingent, and (c) has been
prepared in accordance with generally accepted accounting principles
consistently applied. Since the date of such financial statement there has been
no material adverse change in the condition or operation of Borrower or its
Subsidiary, nor has Borrower or the its Subsidiary mortgaged, pledged, granted a
security interest in or otherwise encumbered any of their assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing or under
this letter.

     6.     Income Tax Returns. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.

     7.     No Subordination. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower's obligations
subject to this letter to any other obligation of Borrower.

     8.     Permits, Franchises. Borrower and each Subsidiary possess, and will
hereafter possess, all permits, consents, approvals, franchises and licenses
required and all rights to trademarks, trade names, patents and fictitious
names, if any, necessary to enable them to conduct the businesses in which they
are now engaged in compliance with applicable law.

     9.     ERISA. Borrower and each Subsidiary are in compliance in all
material respects with all applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended or recodified from time to time
("ERISA"); neither Borrower nor any Subsidiary have not violated any provision
of any defined employee pension benefit plan (as defined in ERISA) maintained or
contributed to by Borrower or any Subsidiary (each, a "Plan"); no Reportable
Event, as defined in ERISA, has occurred and is continuing with respect to any
Plan initiated by Borrower; Borrower has met its minimum funding requirements
under ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles.

<PAGE>

Interlink Electronics, Inc.
June 1, 2002
Page 6

     10.    Other Obligations. Neither Borrower nor any Subsidiary is in default
on any obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.

     11.    Environmental Matters. Except as disclosed by Borrower to Bank in
writing prior to the date hereof, Borrower and each Subsidiary are in compliance
in all material respects with all applicable federal or state environmental,
hazardous waste, health and safety statutes, and any rules or regulations
adopted pursuant thereto, which govern or affect any of Borrower's or any
Subsidiary's operations and/or properties, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act of 1986, the Federal Resource
Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control
Act, as any of the same may be amended, modified or supplemented from time to
time. None of the operations of Borrower or any Subsidiary is the subject of any
federal or state investigation evaluating whether any remedial action involving
a material expenditure is needed to respond to a release of any toxic or
hazardous waste or substance into the environment. Neither Borrower nor any
Subsidiary has any material contingent liability in connection with any release
of any toxic or hazardous waste or substance into the environment.

IV.  CONDITIONS:

     1.     Conditions of Initial Extension of Credit. The obligation of Bank to
extend any credit contemplated by this letter is subject to fulfillment to
Bank's satisfaction of all of the following conditions:

     (a)    Documentation. Bank shall have received each of the Loan Documents,
duly executed and in form and substance satisfactory to Bank.

     (b)    Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower or any Subsidiary, nor any material decline, as determined by Bank, in
the market value of any collateral required hereunder or a substantial or
material portion of the assets of Borrower or any Subsidiary.

     (c)    Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's and each Subsidiary's property, in form,
substance, amounts, covering risks and issued by companies satisfactory to Bank,
and where required by Bank, with loss payable endorsements in favor of Bank.

     2.     Conditions of Each Extension of Credit. The obligation of Bank to
make each extension of credit requested by Borrower hereunder shall be subject
to the fulfillment to Bank's satisfaction of each of the following conditions:

     (a)    Compliance. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this letter and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
default hereunder, and no condition, event or act which with the giving of
notice or

<PAGE>

Interlink Electronics, Inc.
June 1, 2002
Page 7

the passage of time or both would constitute such a default, shall have occurred
and be continuing or shall exist.

     (b)    Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.

V.   COVENANTS:

     Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:

     1.     Punctual Payment. Punctually pay all principal, interest, fees or
other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein, and immediately upon demand by Bank, the amount
by which the outstanding principal balance of any credit subject hereto at any
time exceeds any limitation on borrowings applicable thereto.

     2.     Accounting Records. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same and inspect the
properties of Borrower and any Subsidiary.

     3.     Financial Statements. Provide to Bank all of the following, in form
and detail satisfactory to Bank:

     (a)    not later than 120 days after and as of the end of each fiscal year,
a 10K report filed with the Securities Exchange Commission of Borrower, prepared
by an independent certified public accountant acceptable to Bank, to include
balance sheet, income statement, statement of cash flows, management report,
auditor's report, schedules of consolidations and all supporting schedules and
footnotes;

     (b)    not later than 90 days after and as of the end of each fiscal
quarter, a 10Q report filed with the Securities Exchange Commission of Borrower,
prepared by an independent certified public accountant acceptable to Bank, to
include balance sheet, income statement, statement of cash flows, management
report, auditor's report, schedules of consolidations and all supporting
schedules and footnotes; and

     (c)    from time to time such other information as Bank may reasonably
request pertaining to Borrower and/or any Subsidiary.

     4.     Compliance. Preserve and maintain, and cause each Subsidiary to
preserve and maintain, all licenses, permits, governmental approvals, rights,
privileges and franchises necessary for the conduct of each of their businesses
and comply with the provisions of all documents pursuant to which each of them
is organized and/or which govern their continued

<PAGE>

Interlink Electronics, Inc.
June 1, 2002
Page 8

existence and with the requirements of all laws, rules, regulations and orders
of a governmental agency applicable to each of them and/or each of their
businesses.

     5.     Insurance. Maintain and keep in force, and cause each Subsidiary to
maintain and keep in force, insurance of the types and in amounts customarily
carried in similar lines of business, including but not limited to fire,
extended coverage, public liability, flood, property damage and workers'
compensation, with all such insurance carried with companies and in amounts
satisfactory to Bank, and deliver to Bank from time to time at Bank's request
schedules setting forth all insurance then in effect.

     6.     Facilities. Keep all properties useful or necessary to Borrower's
and each Subsidiary's business in good repair and condition, and from time to
time make necessary repairs, renewals and replacements thereto so that such
properties shall be fully and efficiently preserved and maintained.

     7.     Taxes and Other Liabilities. Pay and discharge when due, and cause
each Subsidiary to pay and discharge when due, any and all indebtedness,
obligations, assessments and taxes, both real or personal, including without
limitation federal and state income taxes and state and local property taxes and
assessments, except (a) such as they may in good faith contest or as to which a
bona fide dispute may arise, and (b) for which Borrower has made provision, to
Bank's satisfaction, for eventual payment thereof in the event Borrower or any
Subsidiary is obligated to make such payment.

     8.     Litigation. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower or any Subsidiary with a claim
in excess of $100,000.00.

     9.     Capital Expenditures. Not make any additional investment in fixed
assets in any fiscal year in excess of an aggregate of $1,500,000.00.

     10.    Lease Expenditures. Not incur operating lease expense in any fiscal
year in excess of an aggregate of $500,000.00.

     11.    Other Indebtedness. Not create, incur, assume or permit to exist,
nor permit any Subsidiary to create, incur, assume or permit to exist, any
indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except for (a) the liabilities of Borrower and any Subsidiary
to Bank, (b) any other liabilities of Borrower and any Subsidiary existing as
of, and disclosed by Borrower to Bank prior to, the date hereof, (c) borrowings
hereafter by Borrower or any Subsidiary from any lender other than Bank or
Borrower, including but not limited to purchase money borrowings, so long as
such outstanding borrowings which arise hereafter at no time exceed
$3,500,000.00 in the aggregate for Borrower and Subsidiaries combined.

     12.    Merger, Consolidation, Transfer of Assets. Not merge into or
consolidate with any other entity, nor permit any Subsidiary to merge into or
consolidate with any other entity, except for the merger of any wholly-owned
Subsidiary of Borrower into Borrower (with Borrower as the survivor), the merger
of any wholly-owned Subsidiary of Borrower into any other wholly-owned
Subsidiary of Borrower, or the merger of any corporation into Borrower (with
Borrower as the

<PAGE>

Interlink Electronics, Inc.
June 1, 2002
Page 9

survivor) or into any wholly-owned Subsidiary of Borrower (with such Subsidiary
as the survivor) as part of a Permitted Acquisition (as defined below); nor
make, nor permit any Subsidiary to make, any substantial change in the nature of
Borrower's or any Subsidiary's business as conducted as of the date hereof; nor
acquire, nor permit any Subsidiary to acquire, all or substantially all of the
assets of any other entity except for mergers which are permitted hereunder and
Permitted Acquisitions; nor sell, lease, transfer or otherwise dispose of, nor
permit any Subsidiary to sell, lease, transfer or otherwise dispose of, all or a
substantial or material portion of Borrower's or any Subsidiary's assets except
in the ordinary course of business.

     As used herein, "Permitted Acquisitions" means any acquisition by Borrower
or any wholly-owned Subsidiary of Borrower of (a) all or substantially all of
the operating assets of any person or entity, or (b) all or substantially all of
the stock of any corporation; provided, however, that all of the following
conditions are satisfied:

     (i)    The assets, entity or line of business which is acquired is in a
substantially similar line of business as that of Borrower or any of its
Subsidiaries as their businesses are conducted on the date of this Agreement.

     (ii)   The acquisition is consummated in compliance with applicable law.

     (iii)  There is no Event of Default, nor any act, condition or event which
with the giving of notice or the passage of time or both would constitute an
Event of Default, and no such Event of Default or potential Event of Default
would result after giving effect to the acquisition.

     (iv)   Borrower gives Bank with at least sixty (60) days prior notice of
the acquisition;

     (v)    Borrower furnishes Bank with copies of such documents and with such
information pertaining to the acquisition as Bank may require, including without
limitation copies of any acquisition agreement and formation documents of any
acquired company.

     13.    Guaranties. Not guarantee or become liable, nor permit any
Subsidiary to guarantee or become liable, in any way as surety, endorser (other
than as endorser of negotiable instruments for deposit or collection in the
ordinary course of business), accommodation endorser or otherwise for, nor
pledge or hypothecate, nor permit any Subsidiary to pledge or hypothecate, any
assets as security for, any liabilities or obligations of any other person or
entity, except for (a) any of the foregoing in favor of Bank, and (b) any of the
foregoing existing as of, and disclosed by Borrower to Bank prior to, the date
hereof.

     14.    Loans, Advances, Investments. Not make any loans or advances to or
investments in any person or entity, except for (a) any of the foregoing
existing as of, and disclosed by Borrower to Bank prior to, the date hereof, (b)
loans hereafter by Borrower to any Subsidiary so long as outstanding loans by
Borrower to Subsidiaries, whether such loans presently exist or arise hereafter,
at no time exceed $500,000.00 in the aggregate for all Subsidiaries combined,
(c) investments by Borrower hereafter in cash and cash equivalents, and (d)
Permitted Acquisitions.

<PAGE>

Interlink Electronics, Inc.
June 1, 2002
Page 10

     15.    Dividends, Distributions. Not declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding.

     16.    Pledge of Assets. Not mortgage, pledge, grant or permit to exist,
nor permit any Subsidiary to mortgage, pledge, grant or permit to exist, a
security interest in, or lien upon, all or any portion of Borrower's or any
Subsidiary's assets now owned or hereafter acquired, except for (a) any of the
foregoing in favor of Bank, (b) any of the foregoing which are existing as of,
and disclosed to Bank in writing prior to, the date hereof, (b) purchase money
security interests in equipment which are granted hereafter to secure purchase
money borrowings from lenders other than Bank or Borrower so long as such
borrowings are permitted under (and within the limits of) paragraph 12 above,
(c) security interests granted hereafter by the Existing Japanese Subsidiary in
its assets to secure its borrowings from lenders other than Bank so long as such
borrowings are permitted under (and within the limits of) paragraph 11 above.

VI.  DEFAULT, REMEDIES:

     1.     Default, Remedies. Upon the violation of any term or condition of
any of the Loan Documents, or upon the occurrence of any default or defined
event of default under any of the Loan Documents: (a) all indebtedness of
Borrower under each of the Loan Documents, any term thereof to the contrary
notwithstanding, shall at Bank's option and without notice become immediately
due and payable without presentment, demand, protest or notice of dishonor, all
of which are expressly waived by Borrower; (b) the obligation, if any, of Bank
to extend any further credit under any of the Loan Documents shall immediately
cease and terminate; and (c) Bank shall have all rights, powers and remedies
available under each of the Loan Documents, or accorded by law, including
without limitation the right to resort to any or all security for any credit
subject hereto and to exercise any or all of the rights of a beneficiary or
secured party pursuant to applicable law. All rights, powers and remedies of
Bank may be exercised at any time by Bank and from time to time after the
occurrence of any such breach or default, are cumulative and not exclusive, and
shall be in addition to any other rights, powers or remedies provided by law or
equity.

     2.     No Waiver. No delay, failure or discontinuance of Bank in exercising
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, permit, consent or approval of any kind by Bank of
any breach of or default under any of the Loan Documents must be in writing and
shall be effective only to the extent set forth in such writing.

     3.     Additional Events of Default. In addition to such "Events of
Default" as are defined in the Notes, the occurrence of any of the following
shall also constitute an "Event of Default" under the Notes:

     (a)    The filing of a petition by or against any Subsidiary under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time

<PAGE>

Interlink Electronics, Inc.
June 1, 2002
Page 11

to time, or under any similar or other law relating to bankruptcy, insolvency,
reorganization or other relief for debtors; the appointment of a receiver,
trustee, custodian or liquidator of or for any part of the assets or property of
any Subsidiary any Subsidiary becomes insolvent, makes a general assignment for
the benefit of creditors or is generally not paying its debts as they become
due.

     (b)    The dissolution or liquidation of any Subsidiary.

     (c)    Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Subsidiary has incurred any obligation for
borrowed money, any purchase obligation, or any other liability of any kind to
any person or entity, including Bank.

     (d)    Any financial statement provided by any Subsidiary to Bank proves to
be incorrect, false or misleading in any material respect.

     (e)    Any sale or transfer of all or a substantial or material part of the
assets of any Subsidiary other than in the ordinary course of its business.

VII. MISCELLANEOUS:

     1.     Notices. All notice, requests and demands which any party is
required or may desire to give to any other party under any provision of this
letter must be in writing delivered to each party at its address first set forth
above, or to such other address as any party may designate by written notice to
all other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.

     2.     Costs, Expenses and Attorneys' Fees. Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
letter and the other Loan Documents, Bank's continued administration hereof and
thereof, and the preparation of amendments and waivers hereto and thereto, (b)
the enforcement of Bank's rights and/or the collection of any amounts which
become due to Bank under any of the Loan Documents, and (c) the prosecution or
defense of any action in any way related to any of the Loan Documents, including
without limitation, any action for declaratory relief, whether incurred at the
trial or appellate level, in an arbitration proceeding or otherwise, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary proceeding, contested
matter or motion brought by Bank or any other person) relating to any Borrower
or any other person or entity.

     3.     Successors, Assignment. This letter shall be binding upon and inure
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interest hereunder without Bank's prior written consent.
Bank reserves the right to sell, assign, transfer, negotiate

<PAGE>

Interlink Electronics, Inc.
June 1, 2002
Page 12

or grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith Bank may
disclose all documents and information which Bank now has or hereafter may
acquire relating to any credit subject hereto, Borrower or its business, or any
collateral required hereunder.

     4.     Entire Agreement; Amendment. This letter and the other Loan
Documents constitute the entire agreement between Borrower and Bank with respect
to each credit subject hereto and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This letter may be amended or modified only in writing signed by each
party hereto.

     5.     No Third Party Beneficiaries. This letter is made and entered into
for the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this letter or any other of the Loan Documents to which it is
not a party.

     6.     Severability of Provisions. If any provision of this letter shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
letter.

     7.     Governing Law. This letter shall be governed by and construed in
accordance with the laws of the State of California.

     8.     Arbitration.

     (a)    Arbitration. The parties hereto agree, upon demand by any party, to
submit to binding arbitration all claims, disputes and controversies between or
among them (and their respective employees, officers, directors, attorneys, and
other agents), whether in tort, contract or otherwise arising out of or relating
to in any way (i) the loan and related Loan Documents which are the subject of
this Agreement and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests for additional
credit.

     (b)    Governing Rules. Any arbitration proceeding will (i) proceed in a
location in California selected by the American Arbitration Association ("AAA");
(ii) be governed by the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
documents between the parties; and (iii) be conducted by the AAA, or such other
administrator as the parties shall mutually agree upon, in accordance with the
AAA's commercial dispute resolution procedures, unless the claim or counterclaim
is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and
costs in which case the arbitration shall be conducted in accordance with the
AAA's optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex
commercial disputes to be referred to, as applicable, as the "Rules"). If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Any party who fails or refuses to
submit to arbitration

<PAGE>

Interlink Electronics, Inc.
June 1, 2002
Page 15

     Your acknowledgment of this letter shall constitute acceptance of the
foregoing terms and conditions. Bank's commitment to extend any credit to
Borrower pursuant to the terms of this letter shall terminate on August 1, 2002,
unless this letter is acknowledged by Borrower and returned to Bank on or before
that date.

                                              Sincerely,

                                              WELLS FARGO BANK,
                                               NATIONAL ASSOCIATION


                                              By: /s/ John E. Ray
                                                  --------------------
                                                  John E. Ray
                                                  Vice President

Acknowledged and accepted as of 7/23/02:

INTERLINK ELECTRONICS, INC.

By: /s/ Paul D. Meyer
   ------------------------------------

Title: CFO
      ---------------------------------

<PAGE>

                                    EXHIBIT A

WELLS FARGO BANK                                   REVOLVING LINE OF CREDIT NOTE

$5,000,000.00                                         Woodland Hills, California
                                                                    June 1, 2002

     FOR VALUE RECEIVED, the undersigned Interlink Electronics, Inc.
("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at Warner Ranch RCBO, 6001 Topanga Cyn Blvd
Ste 205, Woodland Hills, CA 91367, or at such other place as the holder hereof
may designate, in lawful money of the United States of America and in
immediately available funds, the principal sum of $5,000,000.00, or so much
thereof as may be advanced and be outstanding, with interest thereon, to be
computed on each advance from the date of its disbursement as set forth herein.

DEFINITIONS:

     As used herein, the following terms shall have the meanings set forth after
each, and any other term defined in this Note shall have the meaning set forth
at the place defined:

     (a)    "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.

     (b)    "Fixed Rate Term" means a period commencing on a Business Day and
continuing for 1, 2, 3, 6 or 12 months, as designated by Borrower, during which
all or a portion of the outstanding principal balance of this Note bears
interest determined in relation to LIBOR; provided however, that no Fixed Rate
Term may be selected, for a principal amount less than $100,000.00; and provided
further, that no Fixed Rate Term shall extend beyond the scheduled maturity date
hereof. If any Fixed Rate Term would end on a day which is not a Business Day,
then such Fixed Rate Term shall be extended to the next succeeding Business Day.

     (c)    "LIBOR" means the rate per annum (rounded upward, if necessary, to
the nearest whole 1/8 of 1%) determined by dividing Base LIBOR by a percentage
equal to 100% less any LIBOR Reserve Percentage.

        (i)     "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.

        (ii)    "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the
Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable Fixed Rate Term.

     (d)    "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.

INTEREST:


Revolving line of Credit Note (05/01)                                     Page 1
02693, #3792917406

<PAGE>

     (a)    Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum equal to the Prime Rate in effect from time
to time, or (ii) at a fixed rate per annum determined by Bank to be 2.00000%
above LIBOR in effect on the first day of the applicable Fixed Rate Term. When
interest is determined in relation to the Prime Rate, each change in the rate of
interest hereunder shall become effective on the date each Prime Rate change is
announced within Bank. With respect to each LIBOR selection option selected
hereunder, Bank is hereby authorized to note the date, principal amount,
interest rate and Fixed Rate Term applicable thereto and any payments made
thereon on Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to this Note, which notations shall be prima
facie evidence of the accuracy of the information noted.

     (b)    Selection of Interest Rate Options. At any time any portion of this
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR option for
all or a portion of the outstanding principal balance hereof, and at the end of
each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the
interest rate option selected by Borrower; (ii) the principal amount subject
thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed
Rate Term. Any such notice may be given by telephone (or such other electronic
method as Bank may permit) so long as, with respect to each LIBOR selection, (A)
if requested by Bank, Borrower provides to Bank written confirmation thereof not
later than three (3) Business Days after such notice is given, and (B) such
notice is given to Bank prior to 10:00 a.m. on the first day of the Fixed Rate
Term, or at a later time during any Business Day if Bank, at it's sole option
but without obligation to do so, accepts Borrower's notice and quotes a fixed
rate to Borrower. If Borrower does not immediately accept a fixed rate when
quoted by Bank, the quoted rate shall expire and any subsequent LIBOR request
from Borrower shall be subject to a redetermination by Bank of the applicable
fixed rate. If no specific designation of interest is made at the time any
advance is requested hereunder or at the end of any Fixed Rate Term, Borrower
shall be deemed to have made a Prime Rate interest selection for such advance or
the principal amount to which such Fixed Rate Term applied.

     (c)    Taxes and Regulatory Costs. Borrower shall pay to Bank immediately
upon demand, in addition to any other amounts due or to become due hereunder,
any and all (i) withholdings, interest equalization taxes, stamp taxes or other
taxes (except income and franchise taxes) imposed by any domestic or foreign
governmental authority and related in any manner to LIBOR, and (ii) future,
supplemental, emergency or other changes in the LIBOR Reserve Percentage,
assessment rates imposed by the Federal Deposit Insurance Corporation, or
similar requirements or costs imposed by any domestic or foreign governmental
authority or resulting from compliance by Bank with any request or directive
(whether or not having the force of law) from any central bank or other
governmental authority and related in any manner to LIBOR to the extent they are
not included in the calculation of LIBOR. In determining which of the foregoing
are attributable to any LIBOR option available to Borrower hereunder, any
reasonable allocation made by Bank among its operations shall be conclusive and
binding upon Borrower.

     (d)    Payment of Interest. Interest accrued on this Note shall be payable
on the 1st day of each month, commencing July 1, 2002.

     (e)    Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.

BORROWING AND REPAYMENT:

     (a)    Borrowing and Repayment. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and

Revolving line of Credit Note (05/01)                                     Page 2
02693, #3792917406

<PAGE>

conditions of this Note and of any document executed in connection with or
governing this Note; provided however, that the total outstanding borrowings
under this Note shall not at any time exceed the principal amount stated above.
The unpaid principal balance of this obligation at any time shall be the total
amounts advanced hereunder by the holder hereof less the amount of principal
payments made hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding principal balance of
this Note shall be due and payable in full on June 1, 2004.

     (b)    Advances. Advances hereunder, to the total amount of the principal
sum available hereunder, may be made by the holder at the oral or written
request of (i) Paul Meyer or Sharon McCracken, any one acting alone, who are
authorized to request advances and direct the disposition of any advances until
written notice of the revocation of such authority is received by the holder at
the office designated above, or (ii) any person, with respect to advances
deposited to the credit of any deposit account of any Borrower, which advances,
when so deposited, shall be conclusively presumed to have been made to or for
the benefit of each Borrower regardless of the fact that persons other than
those authorized to request advances may have authority to draw against such
account. The holder shall have no obligation to determine whether any person
requesting an advance is or has been authorized by any Borrower.

     (c)    Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
LIBOR, with such payments applied to the oldest Fixed Rate Term first.

PREPAYMENT:

     (a)    Prime Rate. Borrower may prepay principal on any portion of this
Note which bears interest determined in relation to the Prime Rate at any time,
in any amount and without penalty.

     (b)    LIBOR. Borrower may prepay principal on any portion of this Note
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of $100,000.00; provided however, that if the outstanding
principal balance of such portion of this Note is less than said amount, the
minimum prepayment amount shall be the entire outstanding principal balance
thereof. In consideration of Bank providing this prepayment option to Borrower,
or if any such portion of this Note shall become due and payable at any time
prior to the last day of the Fixed Rate Term applicable thereto by acceleration
or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is
the sum of the discounted monthly differences for each month from the month of
prepayment through the month in which such Fixed Rate Term matures, calculated
as follows for each such month:

        (i)     Determine the amount of interest which would have accrued each
month on the amount prepaid at the interest rate applicable to such amount had
it remained outstanding until the last day of the Fixed Rate Term applicable
thereto.

        (ii)    Subtract from the amount determined in (i) above the amount of
interest which would have accrued for the same month on the amount prepaid for
the remaining term of such Fixed Rate Term at LIBOR in effect on the date of
prepayment for new loans made for such term and in a principal amount equal to
the amount prepaid.

        (iii)   If the result obtained in (ii) for any month is greater than
zero, discount that difference by LIBOR used in (ii) above.

Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum 2.000% above the Prime
Rate in effect from time to time (computed on

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02693, #3792917406

<PAGE>

the basis of a 360-day year, actual days elapsed). Each change in the rate of
interest on any such past due prepayment fee shall become effective on the date
each Prime Rate change is announced within Bank.

EVENTS OF DEFAULT:

     The occurrence of any of the following shall constitute an "Event of
Default" under this Note:

     (a)    The failure to pay any principal, interest, fees or other charges
when due hereunder or under any contract, instrument or document executed in
connection with this Note.

     (b)    The filing of a petition by or against any Borrower, any guarantor
of this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they become
due; or any attachment or like levy on any property of any Borrower or Third
Party Obligor.

     (c)    The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.

     (d)    Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder.

     (e)    Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves to be incorrect, false or misleading in any material
respect.

     (f)    Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.

     (g)    Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust, mortgage or other document executed in
connection with or securing this Note.

MISCELLANEOUS:

     (a)    Remedies. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.

Revolving line of Credit Note (05/01)                                     Page 4
02693, #3792917406

<PAGE>

     (b)    Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.

     (c)    Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California.

     IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.

Revolving line of Credit Note (05/01)                                     Page 5
02693, #3792917406

<PAGE>

                                    EXHIBIT B

                              TERM COMMITMENT NOTE

$500,000.00                                           Woodland Hills, California
                                                                    June 1, 2002

     FOR VALUE RECEIVED, the undersigned INTERLINK ELECTRONICS, INC.
("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at 6001 Topanga Canyon Boulevard, Suite 205,
Woodland Hills, California, or at such other place as the holder hereof may
designate, in lawful money of the United States of America and in immediately
available funds, the principal sum of Five Hundred Thousand Dollars
($500,000.00), or so much thereof as may be advanced and be outstanding, with
interest thereon, to be computed on each advance from the date of its
disbursement as set forth herein.

DEFINITIONS:

     As used herein, the following terms shall have the meanings set forth after
each, and any other term defined in this Note shall have the meaning set forth
at the place defined:

     (a)    "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.

     (b)    "Fixed Rate Term" means a period commencing on a Business Day and
continuing for one (1), two (2), three (3), six (6) or twelve (12) months, as
designated by Borrower, during which all or a portion of the outstanding
principal balance of this Note bears interest determined in relation to LIBOR;
provided however, that no Fixed Rate Term may be selected for a principal amount
less than One Hundred Thousand Dollars ($100,000.00); and provided further, that
no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If
any Fixed Rate Term would end on a day which is not a Business Day, then such
Fixed Rate Term shall be extended to the next succeeding Business Day.

     (c)    "LIBOR" means the rate per annum (rounded upward, if necessary, to
the nearest whole 1/8 of 1%) and determined pursuant to the following formula:

           LIBOR =               Base LIBOR
                   ---------------------------------------
                      100% - LIBOR Reserve Percentage

          (i)   "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.

          (ii)  "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency

                                       -1-

<PAGE>

Liabilities" (as defined in Regulation D of the Federal Reserve Board, as
amended), adjusted by Bank for expected changes in such reserve percentage
during the applicable Fixed Rate Term.

     (d)    "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.

 INTEREST:

     (a)    Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum equal to the Prime Rate in effect from time
to time, or (ii) at a fixed rate per annum determined by Bank to be two and
one-half percent (2.5%) above LIBOR in effect on the first day of the applicable
Fixed Rate Term. When interest is determined in relation to the Prime Rate, each
change in the rate of interest hereunder shall become effective on the date each
Prime Rate change is announced within Bank. With respect to each LIBOR selection
hereunder, Bank is hereby authorized to note the date, principal amount,
interest rate and Fixed Rate Term applicable thereto and any payments made
thereon on Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to this Note, which notations shall be prima
facie evidence of the accuracy of the information noted.

     (b)    Selection of Interest Rate Options. At any time any portion of this
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR option for
all or a portion of the outstanding principal balance hereof, and at the end of
each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the
interest rate option selected by Borrower; (ii) the principal amount subject
thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed
Rate Term. Any such notice may be given by telephone (or such other electronic
method as Bank may permit) so long as, with respect to each LIBOR selection, (A)
if requested by Bank, Borrower provides to Bank written confirmation thereof not
later than three (3) Business Days after such notice is given, and (B) such
notice is given to Bank prior to 10:00 a.m. on the first day of the Fixed Rate
Term, or at a later time during any Business Day if Bank, at its sole option but
without obligation to do so, accepts Borrower's notice and quotes a fixed rate
to Borrower. If Borrower does not immediately accept a fixed rate when quoted by
Bank, the quoted rate shall expire and any subsequent LIBOR request from
Borrower shall be subject to a redetermination by Bank of the applicable fixed
rate. If no specific designation of interest is made at the time any advance is
requested hereunder or at the end of any Fixed Rate Term, Borrower shall be
deemed to have made a Prime Rate interest selection for such advance or the
principal amount to which such Fixed Rate Term applied.

     (c)    Taxes and Regulatory Costs. Borrower shall pay to Bank immediately
upon demand, in addition to any other amounts due or to become due hereunder,
any and all (i) withholdings, interest equalization taxes, stamp taxes or other
taxes (except income and franchise taxes) imposed by any domestic or foreign
governmental authority and related in any

                                       -2-

<PAGE>

manner to LIBOR, and (ii) future, supplemental, emergency or other changes in
the LIBOR Reserve Percentage, assessment rates imposed by the Federal Deposit
Insurance Corporation, or similar requirements or costs imposed by any domestic
or foreign governmental authority or resulting from compliance by Bank with any
request or directive (whether or not having the force of law) from any central
bank or other governmental authority and related in any manner to LIBOR to the
extent they are not included in the calculation of LIBOR. In determining which
of the foregoing are attributable to any LIBOR option available to Borrower
hereunder, any reasonable allocation made by Bank among its operations shall be
conclusive and binding upon Borrower.

     (d)    Payment of Interest. Interest accrued on this Note shall be payable
on the first day of each month, commencing August 1, 2002.

     (e)    Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to four percent (4%) above
the rate of interest from time to time applicable to this Note.

BORROWING AND REPAYMENT:

     (a)    Borrowing. Borrower may from time to time from the date hereof
through and including June 30, 2003, borrow and partially or wholly repay its
outstanding borrowings, subject to all of the limitations, terms and conditions
of this Note and of any document executed in connection with or governing this
Note; provided however, that amounts repaid may not be reborrowed; and provided
further, that the total borrowings under this Note shall not exceed the
principal amount stated above. The unpaid principal balance of this obligation
at any time shall be the total amounts advanced hereunder by the holder hereof
less the amount of principal payments made hereon by or for Borrower, which
balance may be endorsed hereon from time to time by the holder.

     (b)    Repayment. The principal balance outstanding under this Note on June
30, 2003 shall be payable on the first day of each month in installments each
equal to one-forty-eighth (1/48) of such principal balance, commencing July 1,
2003, and continuing up to and including May 1, 2007, with a final installment
consisting of all remaining unpaid principal due and payable in full on June 1,
2007.

     (c)    Advances. Advances hereunder, to the total amount of the principal
sum stated above, may be made by the holder at the oral or written request of
(i) Paul Meyer or Sharon McCraken, either one acting alone, who are authorized
to request advances and direct the disposition of any advances until written
notice of the revocation of such authority is received by the holder at the
office designated above, or (ii) any person, with respect to advances deposited
to the credit of any deposit account of Borrower, which advances, when so
deposited, shall be conclusively presumed to have been made to or for the
benefit of Borrower regardless of the fact that persons other than those
authorized to request advances may have authority to draw against such account.
The holder shall have no obligation to determine whether any person requesting
an advance is or has been authorized by Borrower.

     (d)  Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this

                                       -3-

<PAGE>

Note which bears interest determined in relation to the Prime Rate, if any, and
second, to the outstanding principal balance of this Note which bears interest
determined in relation to LIBOR, with such payments applied to the oldest Fixed
Rate Term first.

PREPAYMENT:

     (a)    Prime Rate. Borrower may prepay principal on any portion of this
Note which bears interest determined in relation to the Prime Rate at any time,
in any amount and without penalty.

     (b)    LIBOR. Borrower may prepay principal on any portion of this Note
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of One Hundred Thousand Dollars ($100,000.00); provided however,
that if the outstanding principal balance of such portion of this Note is less
than said amount, the minimum prepayment amount shall be the entire outstanding
principal balance thereof. In consideration of Bank providing this prepayment
option to Borrower, or if any such portion of this Note shall become due and
payable at any time prior to the last day of the Fixed Rate Term applicable
thereto by acceleration or otherwise, Borrower shall pay to Bank immediately
upon demand a fee which is the sum of the discounted monthly differences for
each month from the month of prepayment through the month in which such Fixed
Rate Term matures, calculated as follows for each such month:

        (i)     Determine the amount of interest which would have accrued each
                month on the amount prepaid at the interest rate applicable to
                such amount had it remained outstanding until the last day of
                the Fixed Rate Term applicable thereto.

        (ii)    Subtract from the amount determined in (i) above the amount of
                interest which would have accrued for the same month on the
                amount prepaid for the remaining term of such Fixed Rate Term at
                LIBOR in effect on the date of prepayment for new loans made for
                such term and in a principal amount equal to the amount prepaid.

        (iii)   If the result obtained in (ii) for any month is greater than
                zero, discount that difference by LIBOR used in (ii) above.

Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Borrower, therefore, agrees to pay the above-described prepayment
fee and agrees that said amount represents a reasonable estimate of the
prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay
any prepayment fee when due, the amount of such prepayment fee shall thereafter
bear interest until paid at a rate per annum two percent (2%) above the Prime
Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed). Each change in the rate of interest on any such past due
prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.

EVENTS OF DEFAULT:

     The occurrence of any of the following shall constitute an "Event of
Default" under this Note:

                                       -4-

<PAGE>

     (a)    The failure to pay any principal, interest, fees or other charges
when due hereunder or under any contract, instrument or document executed in
connection with this Note.

     (b)    The filing of a petition by or against any Borrower, any guarantor
of this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they become
due; or any attachment or like levy on any property of any Borrower or Third
Party Obligor.

     (c)    The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.

     (d)    Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder.

     (e)    Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves to be incorrect, false or misleading in any material
respect.

     (f)    Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.

     (g)    Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust, mortgage or other document executed in
connection with or securing this Note.

MISCELLANEOUS:

     (a)    Remedies. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Borrower shall pay to the holder immediately
upon demand the full amount of all payments, advances, charges, costs and
expenses, including reasonable attorneys' fees (to include outside counsel fees
and all allocated costs of the holder's in-house counsel), expended or incurred
by the holder in connection with the enforcement of the holder's rights and/or
the collection of any amounts which become due to the holder under this Note,
and the prosecution or defense of any action in any way related to this Note,
including without limitation, any action for declaratory relief, whether
incurred at the trial or appellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,

                                       -5-

<PAGE>

contested matter or motion brought by Bank or any other person) relating to
Borrower or any other person or entity.

     (b)    Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.

     (c)    Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California.

     IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.

                                       -6-

<PAGE>

                                    EXHIBIT C

WELLS FARGO BANK                                                       TERM NOTE

$353,910.85                                           Woodland Hills, California
                                                                    June 1, 2002

     FOR VALUE RECEIVED, the undersigned Interlink Electronics, Inc.
("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at Warner Ranch RCBO, 6001 Topanga Cyn Blvd
Ste 205, Woodland Hills, CA 91367, or at such other place as the holder hereof
may designate, in lawful money of the United States of America and in
immediately available funds, the principal sum of $353,910.85, with interest
thereon as set forth herein.

DEFINITIONS:

     As used herein, the following terms shall have the meanings set forth after
each, and any other term defined in this Note shall have the meaning set forth
at the place defined:

     (a)    "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.

     (b)    "Fixed Rate Term" means a period commencing on a Business Day and
continuing for 1,2, 3, 6 or 12 months, as designated by Borrower, during which
all or a portion of the outstanding principal balance of this Note bears
interest determined in relation to LIBOR; provided however, that no Fixed Rate
Term may be selected for a principal amount less than $100,000.00; and provided
further, that no Fixed Rate Term shall extend beyond the scheduled maturity date
hereof. If any Fixed Rate Term would end on a day which is not a Business Day,
then such Fixed Rate Term shall be extended to the next succeeding Business Day.

     (c)    "LIBOR" means the rate per annum (rounded upward, if necessary, to
the nearest whole 1/8 of 1%) determined by dividing Base LIBOR by a percentage
equal to 100% less any LIBOR Reserve Percentage.

        (i)     "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.

        (ii)    "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the
Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable Fixed Rate Term.

     (d)    "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.

INTEREST:

     (a)    Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum equal to the Prime Rate in

Term Note-Principal/lnterest Separate (05/01)                             Page 1
02693, #3792917406

<PAGE>

effect from time to time, or (ii) at a fixed rate per annum determined by Bank
to be 2.25000% above LIBOR in effect on the first day of the applicable Fixed
Rate Term. When interest is determined in relation to the Prime Rate, each
change in the rate of interest hereunder shall become effective on the date each
Prime Rate change is announced within Bank. With respect to each LIBOR selection
option selected hereunder. Bank is hereby authorized to note the date, principal
amount, interest rate and Fixed Rate Term applicable thereto and any payments
made thereon on Bank's books and records (either manually or by electronic
entry) and/or on any schedule attached to this Note, which notations shall be
prima facie evidence of the accuracy of the information noted.

     (b)    Selection of Interest Rate Options. At any time any portion of this
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At the time this
Note is disbursed or Borrower wishes to select a LIBOR option for all or a
portion of the outstanding principal balance hereof, and at the end of each
Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest
rate option selected by Borrower; (ii) the principal amount subject thereto; and
(iii) for each LIBOR selection, the length of the applicable Fixed Rate Term.
Any such notice may be given by telephone (or such other electronic method as
Bank may permit) so long as, with respect to each LIBOR selection, (A) if
requested by Bank, Borrower provides to Bank written confirmation thereof not
later than three (3) Business Days after such notice is given, and (B) such
notice is given to Bank prior to 10:00 a.m. on the first day of the Fixed Rate
Term, or at a later time during any Business Day if Bank, at it's sole option
but without obligation to do so, accepts Borrower's notice and quotes a fixed
rate to Borrower. If Borrower does not immediately accept a fixed rate when
quoted by Bank, the quoted rate shall expire and any subsequent LIBOR request
from Borrower shall be subject to a redetermination by Bank of the applicable
fixed rate. If no specific designation of interest is made at the time this Note
is disbursed or at the end of any Fixed Rate Term, Borrower shall be deemed to
have made a Prime Rate interest selection for this Note or the principal amount
to which such Fixed Rate Term applied.

     (c)    Taxes and Regulatory Costs. Borrower shall pay to Bank immediately
upon demand, in addition to any other amounts due or to become due hereunder,
any and all (i) withholdings, interest equalization taxes, stamp taxes or other
taxes (except income and franchise taxes) imposed by any domestic or foreign
governmental authority and related in any manner to LIBOR, and (ii) future,
supplemental, emergency or other changes in the LIBOR Reserve Percentage,
assessment rates imposed by the Federal Deposit Insurance Corporation, or
similar requirements or costs imposed by any domestic or foreign governmental
authority or resulting from compliance by Bank with any request or directive
(whether or not having the force of law) from any central bank or other
governmental authority and related in any manner to LIBOR to the extent they are
not included in the calculation of LIBOR. In determining which of the foregoing
are attributable to any LIBOR option available to Borrower hereunder, any
reasonable allocation made by Bank among its operations shall be conclusive and
binding upon Borrower.

     (d)    Payment of Interest. Interest accrued on this Note shall be payable
on the 1st day of each month, commencing July 1, 2002.

     (e)    Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.

REPAYMENT AND PREPAYMENT:

     (a)    Repayment. Principal shall be payable on the 1st day of each month
in installments of $7,373.14 each, commencing July 1, 2002, and continuing up to
and including May 1, 2006, with a final installment consisting of all remaining
unpaid principal due and payable in full on June 1, 2006.

Term Note-Principal/lnterest Separate (05/01)                             Page 2
02693, #3792917406

<PAGE>

     (b)    Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
LIBOR, with such payments applied to the oldest Fixed Rate Term first.

     (c)    Prepayment.

     Prime Rate. Borrower may prepay principal on any portion of this Note which
bears interest determined in relation to the Prime Rate at any time, in any
amount and without penalty.

     LIBOR. Borrower may prepay principal on any portion of this Note which
bears interest determined in relation to LIBOR at any time and in the minimum
amount of $100,000.00; provided however, that if the outstanding principal
balance of such portion of this Note is less than said amount, the minimum
prepayment amount shall be the entire outstanding principal balance thereof. In
consideration of Bank providing this prepayment option to Borrower, or if any
such portion of this Note shall become due and payable at any time prior to the
last day of the Fixed Rate Term applicable thereto by acceleration or otherwise,
Borrower shall pay to Bank immediately upon demand a fee which is the sum of the
discounted monthly differences for each month from the month of prepayment
through the month in which such Fixed Rate Term matures, calculated as follows
for each such month:

     (i)    Determine the amount of interest which would have accrued each month
on the amount prepaid at the interest rate applicable to such amount had it
remained outstanding until the last day of the Fixed Rate Term applicable
thereto.

     (ii)   Subtract from the amount determined in (i) above the amount of
interest which would have accrued for the same month on the amount prepaid for
the remaining term of such Fixed Rate Term at LIBOR in effect on the date of
prepayment for new loans made for such term and in a principal amount equal to
the amount prepaid.

     (iii)  If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above.

Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum 2.000% above the Prime
Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed). Each change in the rate of interest on any such past due
prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.

     All prepayments of principal shall be applied on the most remote principal
installment or installments then unpaid.

EVENTS OF DEFAULT:

     The occurrence of any of the following shall constitute an "Event of
Default" under this Note:

     (a)    The failure to pay any principal, interest, fees or other charges
when due hereunder or under any contract, instrument or document executed in
connection with this Note.

     (b)    The filing of a petition by or against any Borrower, any guarantor
of this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the

Term Note-Principal/lnterest Separate (05/01)                             Page 3
02693, #3792917406

<PAGE>

appointment of a receiver, trustee, custodian or liquidator of or for any part
of the assets or property of any Borrower or Third Party Obligor; any Borrower
or Third Party Obligor becomes insolvent, makes a general assignment for the
benefit of creditors or is generally not paying its debts as they become due; or
any attachment or like levy on any property of any Borrower or Third Party
Obligor.

     (c)    The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.

     (d)    Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder.

     (e)    Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves to be incorrect, false or misleading in any material
respect.

     (f)    Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.

     (g)    Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust, mortgage or other document executed in
connection with or securing this Note.

MISCELLANEOUS:

     (a)    Remedies. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.

     (b)    Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.

     (c)    Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California.

     IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.

Term Note-Principal/lnterest Separate (05/01)                             Page 4
02693, #3792917406

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>4
<FILENAME>dex991.txt
<DESCRIPTION>CERTIFICATION OF CHIEF EXECUTIVE OFFICER
<TEXT>
<PAGE>

                                                                    EXHIBIT 99.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Interlink Electronics, Inc. (the
"Company") on Form 10-Q for the quarterly period ended June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, E. Michael Thoben, III, Chairman, President and Chief Executive Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:

     (1)  The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


/s/ E. Michael Thoben, III
- --------------------------------
E. Michael Thoben, III
Chairman, President and Chief Executive Officer
August 14th, 2002

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>5
<FILENAME>dex992.txt
<DESCRIPTION>CERTIFICATION OF CHIEF FINANCIAL OFFICER
<TEXT>
<PAGE>


                                                                    EXHIBIT 99.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Interlink Electronics, Inc. (the
"Company") on Form 10-Q for the quarterly period ended June 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Paul D. Meyer, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of my knowledge:

     (1)  The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


/s/ Paul D. Meyer
- -----------------------
Paul D. Meyer
Chief Financial Officer
August 14th, 2002

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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